I tend to be quite the skeptic when management teams come into my office to discuss their business outlook. However, I try to keep an open mind; sometimes what I hear is educational and potentially profitable. I'm beginning to believe that Iona Technologies (IONA-Nasdaq) in Dublin, Ireland, may fall into this category.

Iona's management has focused on Web services and integration based on its business platform, Orbix E2A, which consists of the Orbix E2A Web Services Integration Platform and Orbix E2A Application Server Platform.

The business platform addresses the ever-present issue of whether information can flow across heterogeneous and disparate systems. The company also offers pre-built adapters for business applications from many of the leading ven-dors, including Siebel Systems and SAP.

By focusing on Web services and the ability to provide a standards-based platform for integration, Iona seems to be gaining both mindshare and market share in the fast-growing Web-services market, which has seen some problems with the recent economic downturn.

Iona's CEO, Barry Morris, touts the potential of standards-based Web services, which will let customers migrate away from proprietary integration solutions. We agree with him. The real question is, when will everyone come to the same conclusion? Timing is everything.

Iona, though based in Dublin, really has its headquarters in Waltham, Mass. Like many Irish companies, its corporate base is in Ireland for tax reasons. It's essentially a U.S. company with 900 employees in 30 offices worldwide.

Though Iona has more than 4,500 customers, it has only a couple hundred large enterprise clients. Some of its blue-chip clients include Boeing, Capital One, Chevron, Credit Suisse, Ericsson, KPMG, Nokia, Nike, Nordstrom, Nortel Networks, and Zurich Insurance.

The company's sales strategy is migrating toward more indirect sales to attract business from larger companies. This will require working more closely with system integrators and consultants such as Cap Gemini Ernst & Young and KPMG Consulting, as well as with strategic partners such as Hewlett-Packard/Compaq, J.D. Edwards, and Siebel Systems.

In the fourth quarter of 2001, Iona had $45.5 million in revenue. For the year, Iona reported revenue of $180.7 million, an 18% increase over 2000. The company has reported an operating profit since its inception in 1991--an amazing record, especially since it includes 2001.

My one caveat is that the company excluded some one-time charges in 2001 that would have resulted in a loss for reported earnings per share. However, after review, the one-time charges seem appropriate to be added after the operating-profit line.

From a valuation standpoint, Iona seems to be a good value. There's no a debt, and the company's shares are trading at a price that's roughly its book value, which isn't bad in a still overvalued technology marketplace.

Using other benchmarks shows that based on fiscal-year sales of $181 million in 2001 and a market capitalization of $442 million, Iona's price-to-sales ratio is about 2.4.

Reasonable comparison companies such as webMethods and Tibco trade at price-to-sales ratios of 4.6 and 7.7, respectively. Another comparable application server software company, BEA Systems, trades at a price-to-sales ratio of 6.0.

Given that many of the companies mentioned are still losing money, price to sales remains a good relative valuation benchmark. However, book value is a solid alternative benchmark for investors, and if the company can rebound along with the economy, buying shares at these price levels seems to have much lower risk than many comparable companies.

Iona trades at $16. My firm has already invested in this company, so make sure you do your own homework before jumping in. After all, you may disagree.

William Schaff is chief investment officer at Bay Isle Financial LLC, which manages the InformationWeek 100 Stock Index. Reach him at [email protected].

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